Setting Conversion Rates for the Third Stage of EMU

This paper analyses the constraints on the choice of the conversion rates resulting from the fact that the external value of the Ecu cannot be changed at the start of the third stage of EMU and that one Ecu must be converted into one Euro. These constraints force the authorities to accept the market rates of 31 December 1998 when setting the conversion rates. We propose that the participants should agree on a set of bilateral conversion rates in advance and that they should steer market rates towards these agreed upon bilateral conversion rates.